Just a mere seven years ago, two companies which were offering internet based financial services merged together to form what we now know as PayPal. The first company, X.com, dubbed it self as an internet financial services company. The other company, Confinity, was working on Palm Pilot based payments. Before they knew it, PayPal had become the most ubiquitous way to pay for purchases from online auctions.

As eBay’s popularity grew and the number of online auctions increased dramatically, PayPal grew as well. In October of 2002, eBay Inc. bought out PayPal and since then, most of PayPal’s major competitors have gone out of business. Currently PayPal handles over forty billion dollars in transactions each year, and has seemingly nothing to stop it.

PayPal keeps growing and growing, but there are a few dirty little secrets that the company does not want you to know about. Before you do any business with eBay’s subsidiary PayPal, be very aware of these questionable policies that PayPal has in regards to your money.

Have you ever made a purchase only to find out that the product wasn’t as described and that you really got a bad deal? If you paid with a credit card, you place a simple chargeback and get your money back, but not with PayPal. If you read their terms of service, you will find that it says, “PayPal reserves the right not to dispute a chargeback even if the seller has provided some evidence, particularly if PayPal believes the dispute is not likely to be successful.” Since PayPal is a credit card processor, they have the right to issue all the charge-backs they please, however it seems that PayPal is much more interested in its short term profit margins rather than taking good care of its customers. The reason PayPal discourages charge-backs so much is because the fewer charge-backs they place, the better interest rate they will get from the processing bank and thus will make more money for doing so. Even if your account has been stolen and unauthorized charges have been made against your account, too bad. In their terms of service, you agree to waive the right of filing charge-backs against unauthorized transactions.

It doesn’t stop there; PayPal claims to have a great “seller protection policy” in order to take good care of its customers. When you look at the terms needed in order to meet the policy, you will find that it’s almost impossible to be covered under their seller protection policy. The policy only protects the first $5000 in contested sales per year, and that is only if both the buyer and the seller in the US, the UK, or Canada. In addition, the seller has to have a verified business or premiere account, send to the exact address on PayPal, ship the item in seven days, have tracking information and get a signature upon delivery. When all is said and done, their seller protection policy covers an extremely small fraction of all PayPal transactions.

PayPal has been sued by its customers at least twice. In March of 2002, two account holders sued PayPal for being in violation of the EFT Act, mostly regarding dispute resolution service policies. In an out of court settlement PayPal gave the members of the class action lawsuit $9.25 million and agreed to change its business practices, but denied any wrong doing. In August of 2002, PayPal was sued again for having extremely difficult to follow arbitration practices and mishandling of accounts. The judge ruled in favor of the claimants against PayPal

If you ever want real customer service from PayPal, good luck. They hide their phone number on their website so that they don’t have to pay as many customer service representatives. Instead they offer an email form that you can fill out to get help. Even if you do happen to find a warm body at PayPal, you won’t get all that much help. If they think any of your actions are somewhat questionable, PayPal can do whatever they want with your money. They are the judge, jury and executioner. Even if you’re a perfectly upright seller, and someone pays for one of your items with a stolen credit card, your PayPal account is flagged for “criminal behavior” and all the money in the account is confiscated.

When all is said and done, there are just too many red flags brought up by this company to consider doing business with it. If you’re just a buyer, chances are you’ll be fine most of the time. If you ever have a problem with the service, you’ll probably be on your own. It might be one of the easiest ways to make payment online, but with terms of service like these, no thank you.